There are so many events in the world we have no influence over. The news is populated with articles about the plunging stock market, economic recession, rising interest rates, war in Ukraine, a potential war over Taiwan, and the list goes on. None of the news-worthy stories paint a positive picture for our world and businesses in 2023. With all of the doom and gloom our news sources offer up on a daily basis, what preparations should small businesses and particularly the cooling system and diesel emissions related companies be making for this upcoming year? Perhaps this year’s business motto should be “Adaptation.”
As we take a look at the Cooling Systems Industry over the last 40 years, I think one can say the businesses which are still thriving today have mastered “Adaptation.” In the early 80s, copper and brass automotive radiators were still dominating the majority of work in radiator shops. This trend started to shift by the mid to late 80s as plastic and aluminum radiators became original equipment for the majority of the automotive market. Also diverting business from the radiator shops was inexpensive complete radiators from overseas which were being sold by every type of auto parts outlet. Within 10 years, the automotive radiator aftermarket had been transformed from being predominantly a radiator shop function to the radiator shops having a small piece of the new automotive complete radiator sales market.
Historically, there were over 13,000 radiator service shops in the 60s and 70s with most being started with a very small investment. The small two-man or three-man shops only one test tank, two torches, two rolls of solder, a gallon of flux, an inexpensive paint sprayer, a small steel test tank, a five gallon bucket of paint, some flux brushes, a wire wheel on a bench grinder for cleaning parts, rubber test caps, a couple of rod out tools, a zoo flush gun (hooked to a garden hose and air hose), an air compressor, a limited amount of hand tools, one phone, one beat up pick-up truck for deliveries and a small rented space. One or two solder technicians would stand at the test tank patching and recoring automotive radiators for 8 hours a day.
When the radiator business started to evolve because of changes to the market, these businesses were not accustomed to investing large amounts of money because of the initial small investment to originally start the business. These businesses were not sophisticated and the owner’s mentality was different from those in other industries where a substantial investment was necessary to start and grow a company. The radiator shop’s golden years had come to an end when the Plastic Tank radiator invaded and swept the new car market. It is redundant but worth mentioning the decrease of radiator shops was rapid by the end of the 90s. This trend continued for decades and contributed to the shrinking number of service shops which then led to the consolidation of radiator core manufacturers and cooling system parts distributors. After manufacturing consolidation came the closing of many core manufacturing plants due to the lack of demand for automotive copper and brass radiator cores.
The cooling systems repair industry’s inevitable decline was also aided by the lack of financing and vision necessary to change with the times. Those cooling system repair businesses that did survive and thrive had to change with the market. As a good friend of mine, Frank Finger, has said for years, “Our businesses are not large enough to bully the market.” We are more like surfers who can only ride the wave that appears. We cannot form the wave, but a business owner must use the power of observation to assess the size and direction of the wave.
Radiator repair was still a business as trucks and equipment still had a copper and brass radiator. For those businesses who invested in equipment like tig welders, mig welders, radiator lifts, ultrasonics, vibrasonics, pressure washers, bead blasting equipment and other industry-related equipment, these businesses were positioned for future success. Don’t misconstrue these observations as there were and still are many ways radiator businesses evolved from the 80s to stay relevant then and today. As some radiator repair businesses closed their doors, there were others who diversified early on and began full service automotive repair or embraced the auto radiator warehouse model. Some businesses had the capital to invest in inventory to enable the distribution of new automotive radiators.
You know the saying, “What goes around comes around?” That was certainly true for the truck radiator market as it mirrored the automotive market 20 years later. The truck radiator’s business trajectory was slower to occur, but a lot of the same events which affected cars have affected the heavy duty truck cooling system. As automotive OEMs changed the way they built cars to adapt to the new legislation concerning emissions and safety, so the truck OEMs have done the same. In a conquest for more efficiency, more reliability, reduced manufacturing costs and cleaner burning engines the configurations of cooling systems and the materials used changed. This was and is true for both the automotive and heavy duty industries. Anybody who was around in the 70s or 80s and is still active in the cooling system business today will agree with the assessment of the trends that have shaped the industry we have today.
What does this next year and perhaps the next 5 years look like for the cooling system and diesel emissions industries? One trend that exists is the transformation of the industrial cooling side of our business. Industrial equipment, whether it be for farming, construction, power generation and or mining, will undergo a transformation like the automotive and trucking industries. The one thing that keeps equipment coolers in play for service by shops is the smaller amounts of equipment in the marketplace compared to autos and trucks. Do not be mistaken—the OE equipment manufacturers have changed the cooling system designs and materials just as auto and truck has done.
What does all of this mean for the cooling system service business who is trying to formulate a plan for 2023? The most important task is to gather information about markets and trends. It is imperative as a business owner or manager that you take the time to travel and study the market you make your living in. Unless you are analyzing the current marketplace and speaking with your peers, it will be tougher and tougher as time goes on to form a strategy to lead your company into the future.
Most everyone knows with the increase in interest rates new home sales are crushed which means companies who do residential work exclusively will be looking for different opportunities. The US government has passed funding for infrastructure repair and updating which will keep companies who perform this type of work in tall cotton for the next several years. The labor force involved in residential construction may have opportunities on the commercial side as companies gear up to repair and maintain our decaying infrastructure.
One possible recommendation is to become involved in your local and state business communities to ascertain the type and amount of construction work that is allocated for your area and the companies who will be performing that work. By knowing about the work in the pipeline, one can figure out the types of service opportunities that will become available. This strategy works with every type of industry, whether it is agriculture, trucking, construction, or mining.
Don’t wait for the market to change and you are the last one to find out about it. By getting involved with your state’s heavy equipment and trucking groups, you can receive information about market trends for those industries in your area and perhaps on a national level. Supporting and socializing with the industries you are servicing or want to service is a great way to stay in the know. It also gives you an opportunity to find new products and services that are under served which may create a new opportunity for your company.
When I look around at the radiator businesses who have been successful at expanding their businesses, there are some common themes among those companies. First, they are making substantial financial investments in equipment and technology. Second, they are investing in stocking products and lastly the companies who are expanding have added services their current customers can use or can attract new customers. This is important when evaluating growth since one of the key components seems to be the addition of a service and or product line to the business. There are endless opportunities to expand and grow your business, but unless you are actively engaged in the business community with your customers and peers, you may miss out on being able to read the type of wave and direction it will be coming from.
Some will say the cost of money is prohibiting their businesses from growing. This is not true as commercial bank loans were double digits in the late 90s. There were plenty of businesses who were buying commercial real estate and investing in equipment with the higher interest rates. We all know higher interest rates are temporary and as soon as the rates fall, any money borrowed at higher interest rates can be adjusted to a lower rate as long as the loan is properly negotiated.
Take the opportunity to think about the many ways in which you can adapt and invest in your business in 2023. A key attribute to growing and prospering is to recognize the underserved market or serve a market better than your competition. If a customer asks you if you have a certain product or service and you don’t currently have it available, take some time to research the viability of adding the product or service. If one customer needs it, perhaps there are others who also need it.
NARSA/IDEA’s staff and board of directors wishes everyone a healthy and prosperous 2023. We hope to see you at an upcoming event this year. The association’s events are another great way to talk to other businesses about their successes and how they are achieving expansion.
NARSA/IDEA Executive Director
This editorial was originally published in the January/February 2023 issue of The Cooling Journal.